Are Joint Ventures for Note Investors Legal? | Real Estate Notes Show

Episode: Are Joint Venturing for Note Investors Legal? We ask an SEC Attorney Nathan's Goals and Plans: - Put in bids for eight or nine notes this week - Has two mortgages under contract and seven more mortgages plus two contracts for deed in process - Started doing joint ventures as his capital raising method Key Recommendations: - Call an attorney before raising capital to discuss plan and goals - Visit crowdfundinglawyers.net for free consultations about capital raising structure - Be very careful about pooling multiple investors together as it converts non-securities into securities - Ensure proper documentation and compliance before raising money from friends and family - Understand the difference between Regulation D Rule 506(b) for accredited and unaccredited investors Topics Discussed: - What qualifies as a security under SEC regulations - Joint venture legality and compliance issues for note investors - SEC vs FINRA jurisdiction and oversight - How pooling investor funds triggers securities registration requirements - Capital raising methods: credit cards, friends and family, joint ventures - Risk of SEC enforcement and investor complaints Guest Insights: - A security is defined as pooling multiple investors' funds together for profit managed by a third party - Single investor plus active manager arrangement is generally not a security, but adding more investors changes this - SEC has become more aggressive in taking regulatory control over financing schemes similar to note fractionalizing - Life Partners case example shows SEC will pursue litigation across jurisdictions until finding favorable outcome - Defaults or non-compliance with investor expectations trigger regulatory complaints and audits well nate i appreciate your time i appreciate your amazing knowledge um to all the people watching and those people who watch later um that you've been tremendous help to us but also being willing to answer questions in a in a more personal kind of relationship kind of thing so um you know i appreciate your time and i know nate nathan been working with you closely so you've been highly recommended yeah well nathan it's it's always a pleasure uh talking to you i'm loving actually the first time i've i've really seen you in person even great to meet you as well and everybody out there in facebook land love to meet you too and uh you know how to find the information yes thanks so much thank you so much everyone for watching and uh we'll catch you guys next week thanks a lot guys thank you go you need to say listen i need another 50 for another deal and that's what we're seeing them do or they going back and saying hey okay another 50 grand got another deal coming through we're seeing a lot of that and it sounds to me that if you do that repeatedly that's when the problem could happen where it looks like the basis of your business exactly and you really nailed it with the basis of your business if what you're doing is buying and selling investments whether or not they can be construed as securities or not if there's a issue a major problem a complaining investor you're still calling them investors you're just trying to avoid treating unlike investors when that takes place then the the state or the sec steps in does their own review and starts this well it's your business let's integrate it all together now do you have a problem the safe thing to do and this is uh the smart thing to do is only work with accredited investors there is even under the the different types of securities regulations uh there are less protections for accredited investors what an accredited investor is uh categorically they're the people that have a net worth more than a million dollars uh if they're single they're making at least 200 000 a year if they're married they're making at least 300 000 a year and there's a whole bunch of additional categories being securities licensed now certain securities licenses they are treated as accredited investors and really that just means they should be able to take care of themselves whether or not that's actually true that's the regulations and with that there's generally not a lot of disclosure requirements for credit investors and so if you're in [Music] all right we should be live everyone thank you so much for joining us we are here today with nathan and we'll get to nate the other nathan in a minute here nathan how you doing man very good very good how are you oh how's it up uh how's the week been treating you i guess things are a little breaking the springs kind of warming up a little bit we're getting there it's raining today uh we're all shocked we're looking at pictures from the last couple years and it's so much warmer than it normally is nuts yeah i think for me the awesomeness of it is i enjoy the spring but i don't like that it's super hot um right here um for me which i don't like the super hot but i also don't enjoy when it's like super cold right so i enjoy that mixed kind of weather who knows what it's like um mid 60's kind of thing so for me it's enjoyable um what's your high encounter what kind of summer you guys get in the summer it gets it gets pretty warm uh we'll get up to we'll have a few weeks at least of uh like 100 degree weather like it will get hot normally it'll be you know mid 80s low 90s kind of thing so it gets warm that's crazy so i think for me you know for summer time for us we get in those hundreds but we also get the nice cool night which i like um i couldn't imagine letting this happen wow back to business what you've been doing this week anything that's gone on for you this week at all yeah i got a couple of notes on your contract that i'm purchasing put in bids for another eight or nine okay uh see how it goes so we also we put in a few bids um this week was kind of a low for us were your most your bid cfds or what were they mostly it was actually um i think it was the two that i just got under contract are both uh mortgages and then i've got another seven mortgages and two contracts for deed that i've been on wow that's awesome that's a busy week a lot of you dealing with that yeah but yeah it's been good cool well talking about deal flow right and you get capital your way i get capital my way well what you and i heard through grapevines over the years yeah is a lot of people were either taught think of raising capital as a way of going through it asking a friend a family for some money yes um what have you heard what have you been told what kind of stories have you heard from people who are getting money or getting in uh all kinds of things um i've i've known people that have put notes on a credit card which i think is insane but if you get a low balance i guess you can justify it but that's that's a little scary uh friends and family is a big one uh the jv thing has been kind of the preached model for a long long time yeah inside that's kind of what we're here to address today is what's okay what's not okay and we've got our expert here to help us navigate what's what's and to be honest i started joint venture that's what i did right because that's what i thought about when i thought about investing yeah so oddly enough like it made sense like nathan give me some money i'll do the deal i'll give you the money back and then when talks started happening about being not real i just altered my paperwork saying nathan can you call the attorney can you call the agent and you're saying i don't know what i'm doing but you know i gave you a hundred grand sure i'll do that tasks then i started hearing more and more about it's still not possibly legit and that kind of got scary yeah yeah no you really gotta watch it and uh not something you want to mess around with so today we're joined by nathan dodson um thank you for joining us today my man and for those who are not familiar who you are what you do can you share a little introduction of yourself absolutely and let's not confuse uh nathan and nathan call me nate please all right so uh everybody other than my mom when i'm in trouble sticks with me so i'm one of the principal attorneys of the crowdfunding lawyers i have another law firm that we kind of do beginning to end but today we're really talking about kind of the security side of everything so background is over 15 years of doing only securities transactions major financing transactions primarily in the real estate world has been a few billion dollars in transactions over the years also do startups and some you know mergers and acquisition transactions but generally it really does focus a lot in the real estate realm in kind of all the different facets and uh you know the debt buying is an amazing area and a great way to make money uh of course there's a thousand different ways to slice it up but our background my background the my team's background is doing the securities transactions the compliance and making sure that everything is done safely and in compliance with all the at least u.s regulations yeah right so let's start off what is sec the sec it is the securities exchange commission they are the regulatory arm of the u.s government and they are really creating and enforcing the rules in the securities realm for the companies and issuers in their jurisdiction they and to kind of bifurcate it you do have the sec on one side you also have an organization called finra on another side and they have regulatory oversight over broker dealers and kind of the professional traders where the sec is really paying attention to the securities exchanges uh as well as have oversight and jurisdiction over kind of the issuers and the guys that are out there making the deals that are not broken dealer licensed professional uh investment people so who who falls under the scope of sec like how does one pop up on their radar um uh quite a few different areas that they uh oversee uh one being investment advisors and they enforce the investment advisory act of 1940 investment companies all every company that's listed on a stock exchange have securities or the financial reporting requirements they oversee all of that uh in addition to and now we're going to get to where it really applies the guys that are issuing securities or the guys that are issuing projects i don't even realize that it's securities but surprise it is and uh it falls under the sec's jurisdiction and in the united states it also falls under every state in the u.s has their own regulatory oversight commission as well uh sec being the big dog so uh guy s hedge fund as well um they fall under the security exchange and they have to file the paperwork to become a fund and to raise capital uh yes and no it kind of just depends on what type of security registration or exemption that you're falling under it is possible to set up a hedge fund that you're only doing business in one state you only have investors in one state then the state securities board or division actually has regulatory oversight but if you're setting up a hedge fund that is operating in multiple states all of a sudden it does become the sec's jurisdiction and kind of based on how it's structured what their goals and guidelines are maybe they have to fully register most of them try to figure out how to avoid registration through exempt offerings but they are always dealing with investment advisory areas okay so what what in node investing what makes it fall under sec is it is it because we're buying financial instruments or because we're raising money or is it a little bit of both let me give you the the kind of the standard this is the test and the definition of what's a security uh and then i'll blur it blur the lines a little bit but yeah the most basic it is pooling multiple investors funds together for the purpose of making profit and making money and it's being managed by another party a third person and all the investors they're they're in common they're sitting in the same pool together so when it applies to and thinking about the note buying are you pulling multiple people together that would have a similar interest in a promissory note all of a sudden you've taken what could be a non-security now that you've broken up the note into multiple interest holders it becomes a security that's been the traditional rule but there's actually been some changes going on in the marketplace and it's just something to be very careful about there are many hard money lenders note buyers that will take down an entire note and uh traditionally and still that has not been treated as insecurity however if there's a they call it a scheme of financing if it's an overall plan of how you're funding your business model there's not a problem until there is and it is more and more the sec has tried to uh take regulatory control over different areas a little bit of a different situation but i'll bring it up because of the similarity to the note buying there was a company called life partners life partners was purchasing uh life insurance policies fractionalizing it selling it off to a bunch of investors and sec sued them because they were not abiding by the securities rules and life partners they won their position was well we're just buying and selling uh these life insurance policies we're not doing anything we're not managing anything there's no ongoing activity going on but that and life partners they won sec didn't like that and they kind of just started taking case after case against this same company in different jurisdictions until they finally found a court that gave the sec a win so after losing for basically a decade plus the sec eventually found a court found a jurisdiction that said well you know what you are raising capital for the purpose of these investors making a return on their money we're going to minimize the extent that you're actually doing anything to service these life insurance policies and we're just going to call an investment now that company has gone bankrupt and there's a whole host of securities issues and lawsuits that have been going on because of it so it is always kind of a risk to pay attention to so if you're going to be in a joint venture you and i are going to get into a deal together is that considered a group told people if it's just you and me it depends on who's managing it if you're the manager and i'm the investor and that's it thinking back to that test we're not pooling money together you're an active manager you are that third party and you're using all of my money so actually it's not a security when it's just that type of a setup but now you call jim ask him for his money all of a sudden now you are pulling people together and there are exemptions and you know if it's just really de minimis and it doesn't quite fit the bill you know maybe you get away with it until there's a problem but at the end of the day if you started having defaults you're not reforming to what you're telling the investor is going to happen eventually somebody complains and they don't complain to you they complain to either an attorney or a securities regulator and there will be some audit and if somebody is going to look into what's been happening and the regulators have their own goals and their own strategies but at the end of the day they really are trying to protect the investors so as the sponsors and the deal-making guys you're really sitting on the other side of the table from any of these regulators okay so nathan i just described before a lot of people tuning in today are looking to raise capital from their friends family whatnot what would be an appropriate way to do that they're going to raise funds for the first time then you'll get 50 grand from somebody uh the appropriate thing to do is call an attorney talk through what the plan and goals are visit us at the crowdfundinglawyers.net happy to have no cost free consultations to talk through ideas but it's very important to pay attention to what are you trying to accomplish how are you going to find your investors what you're expecting the investors to do or be friends and family can generally be they call it red d roll 506 b where it can be a limited number of unaccredited investors unlimited accredited investors but you're not allowed to they call it generally solicit you can't put it online you can't market it everywhere but there are kind of some streamlines to that but there's also a lot of requirements you don't want to get caught there's specific securities regulations behind those as well again just talk to an attorney okay so trying to so what we're hearing a lot of people is you howie test is being a guide to know if what they're doing is legal what's your thoughts on that the howie test is exactly the test that i described can you use the legalese terms and everything else but the howie test is specifically the pulling together uh investors with commonality managed by a third party and doing the deal for profit but if i'm keeping it separate like if i've got one investor for uh whatever two notes and then i've got a different investor on different notes and i keep in keeping everybody separated are we okay there or is that crossing over blurry it is uh not necessarily black and white but it's not necessarily doing wrong neither okay because you're not pooling investors money they already have distinct interests uh you do that long enough though it becomes just selling a note by note to potentially you know adding fees adding management responsibilities adding this and that adding that it becomes the scheme of financing for your business and again if if there's ever an issue a state regulator or the sec will dive in and look at everything that you are doing and if they decide that oh if we integrate all of these activities together you've violated a securities rule then you're still dealing with a headache and i said integration what does integration mean from a security standpoint if somebody is doing multiple securities transactions the state regulators or the sec can look at everything that you were doing combine it all together if it's meet certain characteristics generally you know minimal you know happening simultaneously they're not being breaks you're selling the same asset repeatedly notes is kind of unique because it's like real estate every property is unique but you do it long enough and if there starts being problems you end up in the life partners situation of even if you win eventually they'll find a way to get you and and what are the kind of penalties that you can get by violating uh jail really that that's yes absolutely securities fraud can not end up in jail and i've known people that have ended up exactly there well in a better case scenario which is a horrible scenario you owe all the investors your money back you owe a designated interest rate and you cannot discharge it through bankruptcy so you also can end up with a major debt that follows you forever and most of these investors are doing a 50 50 equity split on the deals where they're getting a deal i nathan gives me 100 grand i go into a deal and if that deal makes money i take 50 of the profit he gets 50 profit that deal's done and i the note buying selling business best advice would be only work with accredited investors and then even if the regulators step in and they combine everything together and say is there a problem the response gets to be well no everybody's accredited i don't have too many investors i don't have certain disclosure requirements um there's not a problem there so that's the easiest fix okay so we have some questions in the chat here and i'm trying to post them to the budget um what if i the investor offered to lend somebody somebody i guess i bring another financial investor and the manager does not make initial call i guess that the person who's collecting the might isn't making the call robin if you can clarify that a little bit you know what i'm gonna talk uh just kind of explain something that it'll apply to that situation and many others that your guys are are in the middle of to sell securities to sell investments you either need to be registered and licensed or exempt from registration and licensing and everybody most of the people listening if not all they don't have their series 7 65 or whatever it is so they are relying on an exemption and the most commonly used exemption from being licensed to sell securities we call it the issuer exemption and what the issuer exemption is generally is you have an ongoing working relationship with the issuer of the securities the primary purpose and duty is not to raise capital there's other material activities that are ongoing and expected to be ongoing beyond just this small raising the capital time period you're not getting compensated for bringing in the capital if commissions are paid even if it's getting paid to you know the president for bringing in an investor that's a broker-dealer activity and licensing and compliance is required with that there are also a bunch of different bad boy uh situations that literally people are just barred from doing private investments uh directly being controlled people really being involved with any sort of write d offering period and then additionally there is a you can't actually have been licensed with a broker dealer for the past year just they're trying to stop people that either got fired or just said hey i'm going to jump ship and go work on this side because there's a lot less oversight yeah that that's the reason why that's uh one of the problems of the rule all right so i think the next two questions nathan is really almost the same thing so you want to cover it uh talking about silent partners in an llc or what if two or more investors form a llc then they do joint venture within that llc is that considered as security if they're doing a joint venture joint venture really doesn't mean much if you ask me uh i would call a joint venture a general partnership unless it is uh you know an llc or entity that they all have some sort of management and control relationships with and to go back to that uh i love that you brought up howie talk about it all the time but if i say howie people are like who's out but not mandel uh so if they are both actively involved with the company regardless of how they put in their capital it doesn't meet that investment securities test okay so that's not a a material issue once that entity that joint venture invests into another you have to do a whole another analysis and did was that company set up to invest into this other deal and is this other deal selling a security if so how do they have to treat that joint venture entity is it accredited is it unaccredited do you have to look through and consider each one of the owners or can you look at the entity itself and just to kind of touch on it if an entity is set up specifically to invest into these other securities a special purpose entity you almost always have to reach through that entity and consider each one of the investors individually if they're all accredited the entity itself is accredited if one is unaccredited one of the owners of the joint venture is unaccredited then that would count against the limited number of unaccredited investors that could be accepted but i presume that if you have a company if i mean partner with you and i'm raising money through the llc you're protecting with your part of the llc that would that be correct instead of doing a joint bench or raising money we just form a company together and in that company we take equity just normal equity and you bring in the funds would that be appropriate no confused okay so if if me nathan go to former company he has a hundred thousand and i form llc with him is that st and we're buying loans through his money my working is that legal to avoid the individuals now we're one entity why is that any different than what he's already doing other than now you just threw an llc in the middle of it so that would answer a lot of the questions out there that if you have a silent partner inside the llc that's doing nothing but giving you money that's still seeing because the umbrella llc is not protecting you at all it's really still he's bringing the money in and you're calling llc as an entity that is correct that doesn't add some layer of protection there not at all awesome all right i know ray has a question too nathan if you want to jump on that uh he's got an invest in he's got had a relationship with one investor i source the note with my investors hold on i gotta read this too if i have a relationship with one investor and i source the note and my investor buys a hundred percent of the note in their llc or self-directed ira and then the self-directed ira buys a partial motion this is right i love his creativity uh giving me an interest in their note uh and then they give me written permission so it's not like a brokering thing going on there so like a couple things it also looks like some related party transactions that the ira custodian may have some issues with as well so just to let everyone know i learned this hard way you know once you do a deal individually with somebody outside your race and you're more than 50 50 partnership with them they are now disqualified participant and you can't do a deal inside your ira with that person just like if they're a parent or a child they're disqualified so i learned that the hard way a couple years ago so that's an expensive lesson yeah luckily i didn't get in trouble it was when i realized it during one of my you know one of the webinars or it was actually a conference we went back and changed the numbers percentages to avoid that issue hopefully we do so we're talking about the stuff people want to know how to structure a joint venture agreement correctly and my direction will be to talk to you guys and talk to the attorneys to find out if what they have is correct right and see if what they have built is correct and i know people out there may not want to spend the money to go do this but i promise you the money spent now will be a whole lot less issues problems trouble than if we come into a problem later with the sec jail time fines everything else right there's a whole lot of things you have to worry about cody has shared something in the facebook live uh of the sec government stuff so now we're in a situation where we're kind of getting worried about this right and we wanted to do this correctly what is the next step of raising capital the right way as we're discussing with you today what i'm worried about what you're saying i'm on the edge i'm doing all the deals i'm joined venturing with you know handful people here and there buying notes oh man this may not be right i may get myself in trouble here what do i do definitely reach out to the uh the most qualified attorney and law firm to uh make sure that you're doing everything properly uh you know we of course love to talk to and work with everyone you can find out our information at crowdfundinglawyers.net but really there are you can't just talk to any lawyer securities is a very specialized and technical area frankly most attorneys are don't not only don't practice it aren't allowed to practice it by their errors and emissions or their eno insurance because of how much extra oversight time and risk it really takes so as an example we actually work with attorneys daily across the country and they're focused on the financing and transactions but they refuse to touch the securities part because of the level of risk because of the restrictions from their insurance to really be able to do much so you know definitely talk to a qualified attorney that's specializing in investments and securities and just know it's not a gym down the street with the shingle out front so i did facebook live in the chat box i i shared a google form what we're gonna do is anyone who want nate's information and content creation bio we're going to send you a pdf for the whole thing just fill the form out and you'll immediately get a a the whole bio and everything else to me so a lot of people ask the question you know a general question how much and how long right and this can scale from the what type of sec fund you're going to run you know how big what how many credit investors how may not um and things like that what kind of generalization do you give an investor who wants to do this how long and what kind of cost is typically involved and and does it make a difference if they're brand new or if they've been around for a while like what's uh with some advice for those groups so we uh we kind of do it a little bit different with uh crowdfunding lawyers uh you call just a regular law firm you should be expecting around 35 grand for kind of the beginning to end of the getting some a a private investment setup and that's kind of been the standard for many many years there's also websites that you can find really the the dirt cheap plug in your information and it spits out whatever your offering documents are there's not really any attorneys involved you're not getting any advice you're getting a templated form and good luck with life so we're really doing it very differently than a lot of what's in the market there uh we do we really we base our costs based on the size of the deal we know that hey there's more capital you're raising there's more work that's required there's more risk there's more consultation and follow-up so and everybody hates getting ongoing attorneys fees you know surprise i got a phone message from you that is let's just call it six minutes point one of my billable hour rate let's send it right over to you that's how most of the market works and uh not a fan of it at all so the way that we do it is we we charge just a fixed fee based on the amount of capital and it ranges from if you're only doing like a million dollar deal it starts at like 10 grand if it's a 5 million it gets up to 15 000 and then it scales all the way up to if you're doing a 100 million dollar funding projects uh generally we don't care what kind of securities exemption you're going under we want to make sure that you based on your situation your network your marketing plans your investor plans that you fit the right box and we do the right process so we don't care if it's crowdfunding any friends and family online solicitation we don't care we're there to kind of work with you through the process to just get the best deal together and available the only exception is we do represent reggae offerings and reggae is just kind of its own animal it's like a mini ipo you can raise up to 75 million dollars from any investors but there's a qualification process that actually everything gets filed with the sec there's ongoing filing requirements it takes longer a lot of back and forth with the sec and your information is out there in the public but a great way to uh really take it to that next level and you'll go on the website and you'll find something that looks like that it's a big giant chart it shows you all the different possibilities and what's what's included in those and you know what are the regulations and stuff and most of the time from my knowledge real quick thank you my uh name brother for bringing that up that chart i'm going to tell you right now it has not been updated since there were some major major securities regulation changes literally two weeks ago right the whole game kind of changed just within the past month uh so we still have to update that target but we will and now we really will in the next few days so you know from what i've been told most of the time the cost goes up or down depending on the money size but also what type of fund how many unaccredited investors do you want to get in there and how many credit investors is there any other factors that increase decrease the cost dramatically based on that one factor no not for us at least okay and how long would it take for this process from beginning to end typically take a good target is a month our average is probably three weeks if everything is known this is what we're doing let's hit go we can actually get them done in a couple of weeks this is our specialty this is what we do so we have a pretty streamlined process awesome yeah and i can attest to that we're cruising right along we're doing great making some final decisions right now but we're getting there in the newest change has there been anything that investors like us we should be worried about or any concerns that change for us dramatically some massive changes uh not concerns but benefits i'll touch on a few of the big ones uh that 506 b right d offerings it used to be you could only have 35 unpaired investors period that's now changed you can have 35 unaccredited investors in any 90 day period it's a rolling 90-day period but all of a sudden that 35 cap is gone wow another major major change is uh integration where i was saying hey you're doing a bunch of different offerings and they'll combine it all together that has changed from a they call it a safe harbor as long as you were doing an offering and having a six-month break they would not integrate it the sec has now shortened that six months down to 30 days now you're moving forward with the deal hey i'm gonna do something else if you close one you're working on the other deal you but you're not offering it out for another 30 days not going to be integrated that integration is really what catches a lot of sponsors and issuers in dilemmas so they've made a lot easier to work with and then one more really major change is uh in the crowdfunding world regulation cf the real crowdfunding you can have you know unaccredited investors or credit investors there's not any of the 35 limits there's just limits on how much uncredited investors can invest however it was capped at a million dollars a million in change basically completely worthless you know how are you gonna be able to accomplish that they've increased that maximum now to five million dollars per year so it just expanded greatly the ability to be able to raise capital from the unaccredited and accredited through general solicitation it's just a matter of doing it the right way having a great crowdfunding portal to work with but they've really expanded the usability of the crowdfunding regulations very cool it's amazing the world is changing dramatically quickly um and all this opportunity is there um i've no personally seen many funds open in the last six to eight months uh nathan be another one of them there's a lot of funds opening up and i'm sure there's multiple reasons people are finding out more about it people are being more aware um people are more concerned um you know in the fines like you said before jail and money you know with most investors who get involved in this or get in trouble quote-unquote is it typically the state or the federal part that typically comes out that investor just kind of depends on the size of the problem uh the sec or the fbi tend to not get involved i'm not gonna say they never get involved but they tend to not get involved unless you're talking about over a million dollars the states will get involved for less than a million dollars but they actually may still be involved if it's more than a million dollars as well so they have jurisdiction kind of going across the board the the feds just tend to not care as much as the small guys let the state handle them well it's amazing because a lot of people are probably to call you up just to read or join ventures right and i'm sure you guys will be happy to do that um and they really want to know hey can i make instead of me spending 10 grand and do this fun i'm going to do a deal with nathan i'm going to raise some money i want to make sure my joint venture is correct um you know those kind of things are always questionable things and there's a tons out there that are doing both ways right the tons of funds out there um and in these sec funds are able to be looked at and reviewed by you know the government so at that at all times so that's that's the interesting part because it's more than just opening a fund right it's not just fill paperwork and you're done there's always follow-up always follow-up there's always compliance and so kind of part of what our services are is we do continue to follow up with everybody that organizes a an investment platform with us there could be you know state filings sec filings that really are time sensitive so we do have somebody that continually falls up with all of our clients making sure that hey what's going on is everything good do you have questions new investors do we need to take care of some more filings so that's kind of an ongoing thing throughout the capital raids time period and then also we recognize that it's not just here are some documents have fun uh we do offer an ongoing reasonable consultation we're here to answer your questions marketing investors have questions you know there's how can you accept this type of person what about suitability you know a lot of stuff comes up and you know you can call that attorney that bills for every six minutes but we just like to include it as part of the package so for hey you're off and running for six months we're expecting that you're gonna have questions and we're there to help and support you yeah fantastic i think it's interesting it's a totally different world that it is 2021.

we thought 2020 was weird have you seen influx of people coming to you in the last year or so that are looking open funds we've seen i've seen a lot have you seen influx definitely i mean it was uh the pandemic uh 2020 was just a weird world we all experienced that uh you know april the world shuts down there's all of a sudden every real estate transaction that we had in process it was in the books stopped halted in its tracks uh and you know some of them fell out some of them just got delayed really it seemed like the sellers were working with most of the people and understood hey capital markets were frozen loans couldn't be made it just everybody kind of understood yeah around august september there was like this ketchup like okay well we actually think that this is all going to be okay and so it was not like getting back to normal it was a ketchup from all of these months that uh that there were just delays and closings that's kind of been continuing and now we've got these new rules coming into play that makes raising capital easier and for more areas so life is golden and we just keep uh moving and shaking or the guys that are issuing projects i don't even realize that it's securities but surprise it is and uh it falls under the sec's jurisdiction and in the united states it also falls under every state in the u.s has their own regulatory oversight commission as well uh sec being the big dog so uh guy s hedge fund as well um they fall under the security exchange and they have to file the paperwork to become a fund and to raise capital uh yes and no it kind of just depends on what type of security registration or exemption that you're falling under it is possible to set up a hedge fund that you're only doing business in one state you only have investors in one state then the state securities board or division actually has regulatory oversight but if you're setting up a hedge fund that is operating in multiple states all of a sudden it does become the sec's jurisdiction and kind of based on how it's structured what their goals and guidelines are maybe they have to fully register most of them try to figure out how to avoid registration through exempt offerings but they are always dealing with investment advisory areas okay so what what in node investing what makes it fall under sec is it is it because we're buying financial instruments or because we're raising money or is it a little bit of both let me give you the the kind of the standard this is the test and the definition of what's a security uh and then i'll blur it blur the lines a little bit but yeah the most basic it is pooling multiple investors funds together for the purpose of making profit and making money and it's being managed by another party a third person and all the investors they're they're in common they're sitting in the same pool together so when it applies to and thinking about the note buying are you pulling multiple people together that would have a similar interest in a promissory note all of a sudden you've taken what could be a non-security now that you've broken up the note into multiple interest holders it becomes a security that's been the traditional rule but there's actually been some changes going on in the marketplace and it's just something to be very careful about there are many hard money lenders note buyers that will take down an entire note and uh traditionally and still that has not been treated as insecurity however if there's a they call it a scheme of financing if it's an overall plan of how you're funding your business model there's not a problem until there is and it is more and more the sec has tried to uh take regulatory control over different areas a little bit of a different situation but i'll bring it up because of the similarity to the note buying there was a company called life partners life partners was purchasing uh life insurance policies fractionalizing it selling it off to a bunch of investors and sec sued them because they were not abiding by the securities rules and life partners they won their position was well we're just buying and selling uh these life insurance policies we're not doing anything we're not managing anything there's no ongoing activity going on but that and life partners they won sec didn't like that and they kind of just started taking case after case against this same company in different jurisdictions until they finally found a court that gave the sec a win so after losing for basically a decade plus the sec eventually found a court found a jurisdiction that said well you know what you are raising capital for the purpose of these investors making a return on their money we're going to minimize the extent that you're actually doing anything to service these life insurance policies and we're just going to call an investment now that company has gone bankrupt and there's a whole host of securities issues and lawsuits that have been going on because of it so it is always kind of a risk to pay attention to so if you're going to be in a joint venture you and i are going to get into a deal together is that considered a group told people if it's just you and me it depends on who's managing it if you're the manager and i'm the investor and that's it thinking back to that test we're not pooling money together you're an active manager you are that third party and you're using all of my money so actually it's not a security when it's just that type of a setup but now you call jim ask him for his money all of a sudden now you are pulling people together and there are exemptions and you know if it's just really de minimis and it doesn't quite fit the bill you know maybe you get away with it until there's a problem but at the end of the day if you started having defaults you're not reforming to what you're telling the investor is going to happen eventually somebody complains and they don't complain to you they complain to either an attorney or a securities regulator and there will be some audit and if somebody is going to look into what's been happening and the regulators have their own goals and their own strategies but at the end of the day they really are trying to protect the investors so as the sponsors and the deal-making guys you're really sitting on the other side of the table from any of these regulators okay so nathan i just described before a lot of people tuning in today are looking to raise capital from their friends family whatnot what would be an appropriate way to do that they're going to raise funds for the first time then you'll get 50 grand from somebody uh the appropriate thing to do is call an attorney talk through what the plan and goals are visit us at the crowdfundinglawyers.net happy to have no cost free consultations to talk through ideas but it's very important to pay attention to what are you trying to accomplish how are you going to find your investors what you're expecting the investors to do or be friends and family can generally be they call it red d roll 506 b where it can be a limited number of unaccredited investors unlimited accredited investors but you're not allowed to they call it generally solicit you can't put it online you can't market it everywhere but there are kind of some streamlines to that but there's also a lot of requirements you don't want to get caught there's specific securities regulations behind those as well again just talk to an attorney okay so trying to so what we're hearing a lot of people is you howie test is being a guide to know if what they're doing is legal what's your thoughts on that the howie test is exactly the test that i described can you use the legalese terms and everything else but the howie test is specifically the pulling together uh investors with commonality managed by a third party and doing the deal for profit but if i'm keeping it separate like if i've got one investor for uh whatever two notes and then i've got a different investor on different notes and i keep in keeping everybody separated are we okay there or is that crossing over blurry it is uh not necessarily black and white but it's not necessarily doing wrong neither okay because you're not pooling investors money they already have distinct interests uh you do that long enough though it becomes just selling a note by note to potentially you know adding fees adding management responsibilities adding this and that adding that it becomes the scheme of financing for your business and again if if there's ever an issue a state regulator or the sec will dive in and look at everything that you are doing and if they decide that oh if we integrate all of these activities together you've violated a securities rule then you're still dealing with a headache and i said integration what does integration mean from a security standpoint if somebody is doing multiple securities transactions the state regulators or the sec can look at everything that you were doing combine it all together if it's meet certain characteristics generally you know minimal you know happening simultaneously they're not being breaks you're selling the same asset repeatedly notes is kind of unique because it's like real estate every property is unique but you do it long enough and if there starts being problems you end up in the life partners situation of even if you win eventually they'll find a way to get you and and what are the kind of penalties that you can get by violating uh jail really that that's yes absolutely securities fraud can not end up in jail and i've known people that have ended up exactly there well in a better case scenario which is a horrible scenario you owe all the investors your money back you owe a designated interest rate and you cannot discharge it through bankruptcy so you also can end up with a major debt that follows you forever and most of these investors are doing a 50 50 equity split on the deals where they're getting a deal i nathan gives me 100 grand i go into a deal and if that deal makes money i take 50 of the profit he gets 50 profit that deal's done and i go you need to say listen i need another 50 for another deal and that's what we're seeing them do or they going back and saying hey okay another 50 grand got another deal coming through we're seeing a lot of that and it sounds to me that if you do that repeatedly that's when the problem could happen where it looks like the basis of your business exactly and you really nailed it with the basis of your business if what you're doing is buying and selling investments whether or not they can be construed as securities or not if there's a issue a major problem a complaining investor you're still calling them investors you're just trying to avoid treating unlike investors when that takes place then the the state or the sec steps in does their own review and starts this well it's your business let's integrate it all together now do you have a problem the safe thing to do and this is uh the smart thing to do is only work with accredited investors there is even under the the different types of securities regulations uh there are less protections for accredited investors what an accredited investor is uh categorically they're the people that have a net worth more than a million dollars uh if they're single they're making at least 200 000 a year if they're married they're making at least 300 000 a year and there's a whole bunch of additional categories being securities licensed now certain securities licenses they are treated as accredited investors and really that just means they should be able to take care of themselves whether or not that's actually true that's the regulations and with that there's generally not a lot of disclosure requirements for credit investors and so if you're in the note buying selling business best advice would be only work with accredited investors and then even if the regulators step in and they combine everything together and say is there a problem the response gets to be well no everybody's accredited i don't have too many investors i don't have certain disclosure requirements um there's not a problem there so that's the easiest fix okay so we have some questions in the chat here and i'm trying to post them to the budget um what if i the investor offered to lend somebody somebody i guess i bring another financial investor and the manager does not make initial call i guess that the person who's collecting the might isn't making the call robin if you can clarify that a little bit you know what i'm gonna talk uh just kind of explain something that it'll apply to that situation and many others that your guys are are in the middle of to sell securities to sell investments you either need to be registered and licensed or exempt from registration and licensing and everybody most of the people listening if not all they don't have their series 7 65 or whatever it is so they are relying on an exemption and the most commonly used exemption from being licensed to sell securities we call it the issuer exemption and what the issuer exemption is generally is you have an ongoing working relationship with the issuer of the securities the primary purpose and duty is not to raise capital there's other material activities that are ongoing and expected to be ongoing beyond just this small raising the capital time period you're not getting compensated for bringing in the capital if commissions are paid even if it's getting paid to you know the president for bringing in an investor that's a broker-dealer activity and licensing and compliance is required with that there are also a bunch of different bad boy uh situations that literally people are just barred from doing private investments uh directly being controlled people really being involved with any sort of write d offering period and then additionally there is a you can't actually have been licensed with a broker dealer for the past year just they're trying to stop people that either got fired or just said hey i'm going to jump ship and go work on this side because there's a lot less oversight yeah that that's the reason why that's uh one of the problems of the rule all right so i think the next two questions nathan is really almost the same thing so you want to cover it uh talking about silent partners in an llc or what if two or more investors form a llc then they do joint venture within that llc is that considered as security if they're doing a joint venture joint venture really doesn't mean much if you ask me uh i would call a joint venture a general partnership unless it is uh you know an llc or entity that they all have some sort of management and control relationships with and to go back to that uh i love that you brought up howie talk about it all the time but if i say howie people are like who's out but not mandel uh so if they are both actively involved with the company regardless of how they put in their capital it doesn't meet that investment securities test okay so that's not a a material issue once that entity that joint venture invests into another you have to do a whole another analysis and did was that company set up to invest into this other deal and is this other deal selling a security if so how do they have to treat that joint venture entity is it accredited is it unaccredited do you have to look through and consider each one of the owners or can you look at the entity itself and just to kind of touch on it if an entity is set up specifically to invest into these other securities a special purpose entity you almost always have to reach through that entity and consider each one of the investors individually if they're all accredited the entity itself is accredited if one is unaccredited one of the owners of the joint venture is unaccredited then that would count against the limited number of unaccredited investors that could be accepted but i presume that if you have a company if i mean partner with you and i'm raising money through the llc you're protecting with your part of the llc that would that be correct instead of doing a joint bench or raising money we just form a company together and in that company we take equity just normal equity and you bring in the funds would that be appropriate no confused okay so if if me nathan go to former company he has a hundred thousand and i form llc with him is that st and we're buying loans through his money my working is that legal to avoid the individuals now we're one entity why is that any different than what he's already doing other than now you just threw an llc in the middle of it so that would answer a lot of the questions out there that if you have a silent partner inside the llc that's doing nothing but giving you money that's still seeing because the umbrella llc is not protecting you at all it's really still he's bringing the money in and you're calling llc as an entity that is correct that doesn't add some layer of protection there not at all awesome all right i know ray has a question too nathan if you want to jump on that uh he's got an invest in he's got had a relationship with one investor i source the note with my investors hold on i gotta read this too if i have a relationship with one investor and i source the note and my investor buys a hundred percent of the note in their llc or self-directed ira and then the self-directed ira buys a partial motion this is right i love his creativity uh giving me an interest in their note uh and then they give me written permission so it's not like a brokering thing going on there so like a couple things it also looks like some related party transactions that the ira custodian may have some issues with as well so just to let everyone know i learned this hard way you know once you do a deal individually with somebody outside your race and you're more than 50 50 partnership with them they are now disqualified participant and you can't do a deal inside your ira with that person just like if they're a parent or a child they're disqualified so i learned that the hard way a couple years ago so that's an expensive lesson yeah luckily i didn't get in trouble it was when i realized it during one of my you know one of the webinars or it was actually a conference we went back and changed the numbers percentages to avoid that issue hopefully we do so we're talking about the stuff people want to know how to structure a joint venture agreement correctly and my direction will be to talk to you guys and talk to the attorneys to find out if what they have is correct right and see if what they have built is correct and i know people out there may not want to spend the money to go do this but i promise you the money spent now will be a whole lot less issues problems trouble than if we come into a problem later with the sec jail time fines everything else right there's a whole lot of things you have to worry about cody has shared something in the facebook live uh of the sec government stuff so now we're in a situation where we're kind of getting worried about this right and we wanted to do this correctly what is the next step of raising capital the right way as we're discussing with you today what i'm worried about what you're saying i'm on the edge i'm doing all the deals i'm joined venturing with you know handful people here and there buying notes oh man this may not be right i may get myself in trouble here what do i do definitely reach out to the uh the most qualified attorney and law firm to uh make sure that you're doing everything properly uh you know we of course love to talk to and work with everyone you can find out our information at crowdfundinglawyers.net but really there are you can't just talk to any lawyer securities is a very specialized and technical area frankly most attorneys are don't not only don't practice it aren't allowed to practice it by their errors and emissions or their eno insurance because of how much extra oversight time and risk it really takes so as an example we actually work with attorneys daily across the country and they're focused on the financing and transactions but they refuse to touch the securities part because of the level of risk because of the restrictions from their insurance to really be able to do much so you know definitely talk to a qualified attorney that's specializing in investments and securities and just know it's not a gym down the street with the shingle out front so i did facebook live in the chat box i i shared a google form what we're gonna do is anyone who want nate's information and content creation bio we're going to send you a pdf for the whole thing just fill the form out and you'll immediately get a a the whole bio and everything else to me so a lot of people ask the question you know a general question how much and how long right and this can scale from the what type of sec fund you're going to run you know how big what how many credit investors how may not um and things like that what kind of generalization do you give an investor who wants to do this how long and what kind of cost is typically involved and and does it make a difference if they're brand new or if they've been around for a while like what's uh with some advice for those groups so we uh we kind of do it a little bit different with uh crowdfunding lawyers uh you call just a regular law firm you should be expecting around 35 grand for kind of the beginning to end of the getting some a a private investment setup and that's kind of been the standard for many many years there's also websites that you can find really the the dirt cheap plug in your information and it spits out whatever your offering documents are there's not really any attorneys involved you're not getting any advice you're getting a templated form and good luck with life so we're really doing it very differently than a lot of what's in the market there uh we do we really we base our costs based on the size of the deal we know that hey there's more capital you're raising there's more work that's required there's more risk there's more consultation and follow-up so and everybody hates getting ongoing attorneys fees you know surprise i got a phone message from you that is let's just call it six minutes point one of my billable hour rate let's send it right over to you that's how most of the market works and uh not a fan of it at all so the way that we do it is we we charge just a fixed fee based on the amount of capital and it ranges from if you're only doing like a million dollar deal it starts at like 10 grand if it's a 5 million it gets up to 15 000 and then it scales all the way up to if you're doing a 100 million dollar funding projects uh generally we don't care what kind of securities exemption you're going under we want to make sure that you based on your situation your network your marketing plans your investor plans that you fit the right box and we do the right process so we don't care if it's crowdfunding any friends and family online solicitation we don't care we're there to kind of work with you through the process to just get the best deal together and available the only exception is we do represent reggae offerings and reggae is just kind of its own animal it's like a mini ipo you can raise up to 75 million dollars from any investors but there's a qualification process that actually everything gets filed with the sec there's ongoing filing requirements it takes longer a lot of back and forth with the sec and your information is out there in the public but a great way to uh really take it to that next level and you'll go on the website and you'll find something that looks like that it's a big giant chart it shows you all the different possibilities and what's what's included in those and you know what are the regulations and stuff and most of the time from my knowledge real quick thank you my uh name brother for bringing that up that chart i'm going to tell you right now it has not been updated since there were some major major securities regulation changes literally two weeks ago right the whole game kind of changed just within the past month uh so we still have to update that target but we will and now we really will in the next few days so you know from what i've been told most of the time the cost goes up or down depending on the money size but also what type of fund how many unaccredited investors do you want to get in there and how many credit investors is there any other factors that increase decrease the cost dramatically based on that one factor no not for us at least okay and how long would it take for this process from beginning to end typically take a good target is a month our average is probably three weeks if everything is known this is what we're doing let's hit go we can actually get them done in a couple of weeks this is our specialty this is what we do so we have a pretty streamlined process awesome yeah and i can attest to that we're cruising right along we're doing great making some final decisions right now but we're getting there in the newest change has there been anything that investors like us we should be worried about or any concerns that change for us dramatically some massive changes uh not concerns but benefits i'll touch on a few of the big ones uh that 506 b right d offerings it used to be you could only have 35 unpaired investors period that's now changed you can have 35 unaccredited investors in any 90 day period it's a rolling 90-day period but all of a sudden that 35 cap is gone wow another major major change is uh integration where i was saying hey you're doing a bunch of different offerings and they'll combine it all together that has changed from a they call it a safe harbor as long as you were doing an offering and having a six-month break they would not integrate it the sec has now shortened that six months down to 30 days now you're moving forward with the deal hey i'm gonna do something else if you close one you're working on the other deal you but you're not offering it out for another 30 days not going to be integrated that integration is really what catches a lot of sponsors and issuers in dilemmas so they've made a lot easier to work with and then one more really major change is uh in the crowdfunding world regulation cf the real crowdfunding you can have you know unaccredited investors or credit investors there's not any of the 35 limits there's just limits on how much uncredited investors can invest however it was capped at a million dollars a million in change basically completely worthless you know how are you gonna be able to accomplish that they've increased that maximum now to five million dollars per year so it just expanded greatly the ability to be able to raise capital from the unaccredited and accredited through general solicitation it's just a matter of doing it the right way having a great crowdfunding portal to work with but they've really expanded the usability of the crowdfunding regulations very cool it's amazing the world is changing dramatically quickly um and all this opportunity is there um i've no personally seen many funds open in the last six to eight months uh nathan be another one of them there's a lot of funds opening up and i'm sure there's multiple reasons people are finding out more about it people are being more aware um people are more concerned um you know in the fines like you said before jail and money you know with most investors who get involved in this or get in trouble quote-unquote is it typically the state or the federal part that typically comes out that investor just kind of depends on the size of the problem uh the sec or the fbi tend to not get involved i'm not gonna say they never get involved but they tend to not get involved unless you're talking about over a million dollars the states will get involved for less than a million dollars but they actually may still be involved if it's more than a million dollars as well so they have jurisdiction kind of going across the board the the feds just tend to not care as much as the small guys let the state handle them well it's amazing because a lot of people are probably to call you up just to read or join ventures right and i'm sure you guys will be happy to do that um and they really want to know hey can i make instead of me spending 10 grand and do this fun i'm going to do a deal with nathan i'm going to raise some money i want to make sure my joint venture is correct um you know those kind of things are always questionable things and there's a tons out there that are doing both ways right the tons of funds out there um and in these sec funds are able to be looked at and reviewed by you know the government so at that at all times so that's that's the interesting part because it's more than just opening a fund right it's not just fill paperwork and you're done there's always follow-up always follow-up there's always compliance and so kind of part of what our services are is we do continue to follow up with everybody that organizes a an investment platform with us there could be you know state filings sec filings that really are time sensitive so we do have somebody that continually falls up with all of our clients making sure that hey what's going on is everything good do you have questions new investors do we need to take care of some more filings so that's kind of an ongoing thing throughout the capital raids time period and then also we recognize that it's not just here are some documents have fun uh we do offer an ongoing reasonable consultation we're here to answer your questions marketing investors have questions you know there's how can you accept this type of person what about suitability you know a lot of stuff comes up and you know you can call that attorney that bills for every six minutes but we just like to include it as part of the package so for hey you're off and running for six months we're expecting that you're gonna have questions and we're there to help and support you yeah fantastic i think it's interesting it's a totally different world that it is 2021.

we thought 2020 was weird have you seen influx of people coming to you in the last year or so that are looking open funds we've seen i've seen a lot have you seen influx definitely i mean it was uh the pandemic uh 2020 was just a weird world we all experienced that uh you know april the world shuts down there's all of a sudden every real estate transaction that we had in process it was in the books stopped halted in its tracks uh and you know some of them fell out some of them just got delayed really it seemed like the sellers were working with most of the people and understood hey capital markets were frozen loans couldn't be made it just everybody kind of understood yeah around august september there was like this ketchup like okay well we actually think that this is all going to be okay and so it was not like getting back to normal it was a ketchup from all of these months that uh that there were just delays and closings that's kind of been continuing and now we've got these new rules coming into play that makes raising capital easier and for more areas so life is golden and we just keep uh moving and shaking well nate i appreciate your time i appreciate your amazing knowledge um to all the people watching and those people who watch later um that you've been tremendous help to us but also being willing to answer questions in a in a more personal kind of relationship kind of thing so um you know i appreciate your time and i know nate nathan been working with you closely so you've been highly recommended yeah well nathan it's it's always a pleasure uh talking to you i'm loving actually the first time i've i've really seen you in person even great to meet you as well and everybody out there in facebook land love to meet you too and uh you know how to find the information yes thanks so much thank you so much everyone for watching and uh we'll catch you guys next week thanks a lot guys thank you [Music] all right we should be live everyone thank you so much for joining us we are here today with nathan and we'll get to nate the other nathan in a minute here nathan how you doing man very good very good how are you oh how's it up uh how's the week been treating you i guess things are a little breaking the springs kind of warming up a little bit we're getting there it's raining today uh we're all shocked we're looking at pictures from the last couple years and it's so much warmer than it normally is nuts yeah i think for me the awesomeness of it is i enjoy the spring but i don't like that it's super hot um right here um for me which i don't like the super hot but i also don't enjoy when it's like super cold right so i enjoy that mixed kind of weather who knows what it's like um mid 60's kind of thing so for me it's enjoyable um what's your high encounter what kind of summer you guys get in the summer it gets it gets pretty warm uh we'll get up to we'll have a few weeks at least of uh like 100 degree weather like it will get hot normally it'll be you know mid 80s low 90s kind of thing so it gets warm that's crazy so i think for me you know for summer time for us we get in those hundreds but we also get the nice cool night which i like um i couldn't imagine letting this happen wow back to business what you've been doing this week anything that's gone on for you this week at all yeah i got a couple of notes on your contract that i'm purchasing put in bids for another eight or nine okay uh see how it goes so we also we put in a few bids um this week was kind of a low for us were your most your bid cfds or what were they mostly it was actually um i think it was the two that i just got under contract are both uh mortgages and then i've got another seven mortgages and two contracts for deed that i've been on wow that's awesome that's a busy week a lot of you dealing with that yeah but yeah it's been good cool well talking about deal flow right and you get capital your way i get capital my way well what you and i heard through grapevines over the years yeah is a lot of people were either taught think of raising capital as a way of going through it asking a friend a family for some money yes um what have you heard what have you been told what kind of stories have you heard from people who are getting money or getting in uh all kinds of things um i've i've known people that have put notes on a credit card which i think is insane but if you get a low balance i guess you can justify it but that's that's a little scary uh friends and family is a big one uh the jv thing has been kind of the preached model for a long long time yeah inside that's kind of what we're here to address today is what's okay what's not okay and we've got our expert here to help us navigate what's what's and to be honest i started joint venture that's what i did right because that's what i thought about when i thought about investing yeah so oddly enough like it made sense like nathan give me some money i'll do the deal i'll give you the money back and then when talks started happening about being not real i just altered my paperwork saying nathan can you call the attorney can you call the agent and you're saying i don't know what i'm doing but you know i gave you a hundred grand sure i'll do that tasks then i started hearing more and more about it's still not possibly legit and that kind of got scary yeah yeah no you really gotta watch it and uh not something you want to mess around with so today we're joined by nathan dodson um thank you for joining us today my man and for those who are not familiar who you are what you do can you share a little introduction of yourself absolutely and let's not confuse uh nathan and nathan call me nate please all right so uh everybody other than my mom when i'm in trouble sticks with me so i'm one of the principal attorneys of the crowdfunding lawyers i have another law firm that we kind of do beginning to end but today we're really talking about kind of the security side of everything so background is over 15 years of doing only securities transactions major financing transactions primarily in the real estate world has been a few billion dollars in transactions over the years also do startups and some you know mergers and acquisition transactions but generally it really does focus a lot in the real estate realm in kind of all the different facets and uh you know the debt buying is an amazing area and a great way to make money uh of course there's a thousand different ways to slice it up but our background my background the my team's background is doing the securities transactions the compliance and making sure that everything is done safely and in compliance with all the at least u.s regulations yeah right so let's start off what is sec the sec it is the securities exchange commission they are the regulatory arm of the u.s government and they are really creating and enforcing the rules in the securities realm for the companies and issuers in their jurisdiction they and to kind of bifurcate it you do have the sec on one side you also have an organization called finra on another side and they have regulatory oversight over broker dealers and kind of the professional traders where the sec is really paying attention to the securities exchanges uh as well as have oversight and jurisdiction over kind of the issuers and the guys that are out there making the deals that are not broken dealer licensed professional uh investment people so who who falls under the scope of sec like how does one pop up on their radar um uh quite a few different areas that they uh oversee uh one being investment advisors and they enforce the investment advisory act of 1940 investment companies all every company that's listed on a stock exchange have securities or the financial reporting requirements they oversee all of that uh in addition to and now we're going to get to where it really applies the guys that are issuing securities or the guys that are issuing projects i don't even realize that it's securities but surprise it is and uh it falls under the sec's jurisdiction and in the united states it also falls under every state in the u.s has their own regulatory oversight commission as well uh sec being the big dog so uh guy s hedge fund as well um they fall under the security exchange and they have to file the paperwork to become a fund and to raise capital uh yes and no it kind of just depends on what type of security registration or exemption that you're falling under it is possible to set up a hedge fund that you're only doing business in one state you only have investors in one state then the state securities board or division actually has regulatory oversight but if you're setting up a hedge fund that is operating in multiple states all of a sudden it does become the sec's jurisdiction and kind of based on how it's structured what their goals and guidelines are maybe they have to fully register most of them try to figure out how to avoid registration through exempt offerings but they are always dealing with investment advisory areas okay so what what in node investing what makes it fall under sec is it is it because we're buying financial instruments or because we're raising money or is it a little bit of both let me give you the the kind of the standard this is the test and the definition of what's a security uh and then i'll blur it blur the lines a little bit but yeah the most basic it is pooling multiple investors funds together for the purpose of making profit and making money and it's being managed by another party a third person and all the investors they're they're in common they're sitting in the same pool together so when it applies to and thinking about the note buying are you pulling multiple people together that would have a similar interest in a promissory note all of a sudden you've taken what could be a non-security now that you've broken up the note into multiple interest holders it becomes a security that's been the traditional rule but there's actually been some changes going on in the marketplace and it's just something to be very careful about there are many hard money lenders note buyers that will take down an entire note and uh traditionally and still that has not been treated as insecurity however if there's a they call it a scheme of financing if it's an overall plan of how you're funding your business model there's not a problem until there is and it is more and more the sec has tried to uh take regulatory control over different areas a little bit of a different situation but i'll bring it up because of the similarity to the note buying there was a company called life partners life partners was purchasing uh life insurance policies fractionalizing it selling it off to a bunch of investors and sec sued them because they were not abiding by the securities rules and life partners they won their position was well we're just buying and selling uh these life insurance policies we're not doing anything we're not managing anything there's no ongoing activity going on but that and life partners they won sec didn't like that and they kind of just started taking case after case against this same company in different jurisdictions until they finally found a court that gave the sec a win so after losing for basically a decade plus the sec eventually found a court found a jurisdiction that said well you know what you are raising capital for the purpose of these investors making a return on their money we're going to minimize the extent that you're actually doing anything to service these life insurance policies and we're just going to call an investment now that company has gone bankrupt and there's a whole host of securities issues and lawsuits that have been going on because of it so it is always kind of a risk to pay attention to so if you're going to be in a joint venture you and i are going to get into a deal together is that considered a group told people if it's just you and me it depends on who's managing it if you're the manager and i'm the investor and that's it thinking back to that test we're not pooling money together you're an active manager you are that third party and you're using all of my money so actually it's not a security when it's just that type of a setup but now you call jim ask him for his money all of a sudden now you are pulling people together and there are exemptions and you know if it's just really de minimis and it doesn't quite fit the bill you know maybe you get away with it until there's a problem but at the end of the day if you started having defaults you're not reforming to what you're telling the investor is going to happen eventually somebody complains and they don't complain to you they complain to either an attorney or a securities regulator and there will be some audit and if somebody is going to look into what's been happening and the regulators have their own goals and their own strategies but at the end of the day they really are trying to protect the investors so as the sponsors and the deal-making guys you're really sitting on the other side of the table from any of these regulators okay so nathan i just described before a lot of people tuning in today are looking to raise capital from their friends family whatnot what would be an appropriate way to do that they're going to raise funds for the first time then you'll get 50 grand from somebody uh the appropriate thing to do is call an attorney talk through what the plan and goals are visit us at the crowdfundinglawyers.net happy to have no cost free consultations to talk through ideas but it's very important to pay attention to what are you trying to accomplish how are you going to find your investors what you're expecting the investors to do or be friends and family can generally be they call it red d roll 506 b where it can be a limited number of unaccredited investors unlimited accredited investors but you're not allowed to they call it generally solicit you can't put it online you can't market it everywhere but there are kind of some streamlines to that but there's also a lot of requirements you don't want to get caught there's specific securities regulations behind those as well again just talk to an attorney okay so trying to so what we're hearing a lot of people is you howie test is being a guide to know if what they're doing is legal what's your thoughts on that the howie test is exactly the test that i described can you use the legalese terms and everything else but the howie test is specifically the pulling together uh investors with commonality managed by a third party and doing the deal for profit but if i'm keeping it separate like if i've got one investor for uh whatever two notes and then i've got a different investor on different notes and i keep in keeping everybody separated are we okay there or is that crossing over blurry it is uh not necessarily black and white but it's not necessarily doing wrong neither okay because you're not pooling investors money they already have distinct interests uh you do that long enough though it becomes just selling a note by note to potentially you know adding fees adding management responsibilities adding this and that adding that it becomes the scheme of financing for your business and again if if there's ever an issue a state regulator or the sec will dive in and look at everything that you are doing and if they decide that oh if we integrate all of these activities together you've violated a securities rule then you're still dealing with a headache and i said integration what does integration mean from a security standpoint if somebody is doing multiple securities transactions the state regulators or the sec can look at everything that you were doing combine it all together if it's meet certain characteristics generally you know minimal you know happening simultaneously they're not being breaks you're selling the same asset repeatedly notes is kind of unique because it's like real estate every property is unique but you do it long enough and if there starts being problems you end up in the life partners situation of even if you win eventually they'll find a way to get you and and what are the kind of penalties that you can get by violating uh jail really that that's yes absolutely securities fraud can not end up in jail and i've known people that have ended up exactly there well in a better case scenario which is a horrible scenario you owe all the investors your money back you owe a designated interest rate and you cannot discharge it through bankruptcy so you also can end up with a major debt that follows you forever and most of these investors are doing a 50 50 equity split on the deals where they're getting a deal i nathan gives me 100 grand i go into a deal and if that deal makes money i take 50 of the profit he gets 50 profit that deal's done and i go you need to say listen i need another 50 for another deal and that's what we're seeing them do or they going back and saying hey okay another 50 grand got another deal coming through we're seeing a lot of that and it sounds to me that if you do that repeatedly that's when the problem could happen where it looks like the basis of your business exactly and you really nailed it with the basis of your business if what you're doing is buying and selling investments whether or not they can be construed as securities or not if there's a issue a major problem a complaining investor you're still calling them investors you're just trying to avoid treating unlike investors when that takes place then the the state or the sec steps in does their own review and starts this well it's your business let's integrate it all together now do you have a problem the safe thing to do and this is uh the smart thing to do is only work with accredited investors there is even under the the different types of securities regulations uh there are less protections for accredited investors what an accredited investor is uh categorically they're the people that have a net worth more than a million dollars uh if they're single they're making at least 200 000 a year if they're married they're making at least 300 000 a year and there's a whole bunch of additional categories being securities licensed now certain securities licenses they are treated as accredited investors and really that just means they should be able to take care of themselves whether or not that's actually true that's the regulations and with that there's generally not a lot of disclosure requirements for credit investors and so if you're in the note buying selling business best advice would be only work with accredited investors and then even if the regulators step in and they combine everything together and say is there a problem the response gets to be well no everybody's accredited i don't have too many investors i don't have certain disclosure requirements um there's not a problem there so that's the easiest fix okay so we have some questions in the chat here and i'm trying to post them to the budget um what if i the investor offered to lend somebody somebody i guess i bring another financial investor and the manager does not make initial call i guess that the person who's collecting the might isn't making the call robin if you can clarify that a little bit you know what i'm gonna talk uh just kind of explain something that it'll apply to that situation and many others that your guys are are in the middle of to sell securities to sell investments you either need to be registered and licensed or exempt from registration and licensing and everybody most of the people listening if not all they don't have their series 7 65 or whatever it is so they are relying on an exemption and the most commonly used exemption from being licensed to sell securities we call it the issuer exemption and what the issuer exemption is generally is you have an ongoing working relationship with the issuer of the securities the primary purpose and duty is not to raise capital there's other material activities that are ongoing and expected to be ongoing beyond just this small raising the capital time period you're not getting compensated for bringing in the capital if commissions are paid even if it's getting paid to you know the president for bringing in an investor that's a broker-dealer activity and licensing and compliance is required with that there are also a bunch of different bad boy uh situations that literally people are just barred from doing private investments uh directly being controlled people really being involved with any sort of write d offering period and then additionally there is a you can't actually have been licensed with a broker dealer for the past year just they're trying to stop people that either got fired or just said hey i'm going to jump ship and go work on this side because there's a lot less oversight yeah that that's the reason why that's uh one of the problems of the rule all right so i think the next two questions nathan is really almost the same thing so you want to cover it uh talking about silent partners in an llc or what if two or more investors form a llc then they do joint venture within that llc is that considered as security if they're doing a joint venture joint venture really doesn't mean much if you ask me uh i would call a joint venture a general partnership unless it is uh you know an llc or entity that they all have some sort of management and control relationships with and to go back to that uh i love that you brought up howie talk about it all the time but if i say howie people are like who's out but not mandel uh so if they are both actively involved with the company regardless of how they put in their capital it doesn't meet that investment securities test okay so that's not a a material issue once that entity that joint venture invests into another you have to do a whole another analysis and did was that company set up to invest into this other deal and is this other deal selling a security if so how do they have to treat that joint venture entity is it accredited is it unaccredited do you have to look through and consider each one of the owners or can you look at the entity itself and just to kind of touch on it if an entity is set up specifically to invest into these other securities a special purpose entity you almost always have to reach through that entity and consider each one of the investors individually if they're all accredited the entity itself is accredited if one is unaccredited one of the owners of the joint venture is unaccredited then that would count against the limited number of unaccredited investors that could be accepted but i presume that if you have a company if i mean partner with you and i'm raising money through the llc you're protecting with your part of the llc that would that be correct instead of doing a joint bench or raising money we just form a company together and in that company we take equity just normal equity and you bring in the funds would that be appropriate no confused okay so if if me nathan go to former company he has a hundred thousand and i form llc with him is that st and we're buying loans through his money my working is that legal to avoid the individuals now we're one entity why is that any different than what he's already doing other than now you just threw an llc in the middle of it so that would answer a lot of the questions out there that if you have a silent partner inside the llc that's doing nothing but giving you money that's still seeing because the umbrella llc is not protecting you at all it's really still he's bringing the money in and you're calling llc as an entity that is correct that doesn't add some layer of protection there not at all awesome all right i know ray has a question too nathan if you want to jump on that uh he's got an invest in he's got had a relationship with one investor i source the note with my investors hold on i gotta read this too if i have a relationship with one investor and i source the note and my investor buys a hundred percent of the note in their llc or self-directed ira and then the self-directed ira buys a partial motion this is right i love his creativity uh giving me an interest in their note uh and then they give me written permission so it's not like a brokering thing going on there so like a couple things it also looks like some related party transactions that the ira custodian may have some issues with as well so just to let everyone know i learned this hard way you know once you do a deal individually with somebody outside your race and you're more than 50 50 partnership with them they are now disqualified participant and you can't do a deal inside your ira with that person just like if they're a parent or a child they're disqualified so i learned that the hard way a couple years ago so that's an expensive lesson yeah luckily i didn't get in trouble it was when i realized it during one of my you know one of the webinars or it was actually a conference we went back and changed the numbers percentages to avoid that issue hopefully we do so we're talking about the stuff people want to know how to structure a joint venture agreement correctly and my direction will be to talk to you guys and talk to the attorneys to find out if what they have is correct right and see if what they have built is correct and i know people out there may not want to spend the money to go do this but i promise you the money spent now will be a whole lot less issues problems trouble than if we come into a problem later with the sec jail time fines everything else right there's a whole lot of things you have to worry about cody has shared something in the facebook live uh of the sec government stuff so now we're in a situation where we're kind of getting worried about this right and we wanted to do this correctly what is the next step of raising capital the right way as we're discussing with you today what i'm worried about what you're saying i'm on the edge i'm doing all the deals i'm joined venturing with you know handful people here and there buying notes oh man this may not be right i may get myself in trouble here what do i do definitely reach out to the uh the most qualified attorney and law firm to uh make sure that you're doing everything properly uh you know we of course love to talk to and work with everyone you can find out our information at crowdfundinglawyers.net but really there are you can't just talk to any lawyer securities is a very specialized and technical area frankly most attorneys are don't not only don't practice it aren't allowed to practice it by their errors and emissions or their eno insurance because of how much extra oversight time and risk it really takes so as an example we actually work with attorneys daily across the country and they're focused on the financing and transactions but they refuse to touch the securities part because of the level of risk because of the restrictions from their insurance to really be able to do much so you know definitely talk to a qualified attorney that's specializing in investments and securities and just know it's not a gym down the street with the shingle out front so i did facebook live in the chat box i i shared a google form what we're gonna do is anyone who want nate's information and content creation bio we're going to send you a pdf for the whole thing just fill the form out and you'll immediately get a a the whole bio and everything else to me so a lot of people ask the question you know a general question how much and how long right and this can scale from the what type of sec fund you're going to run you know how big what how many credit investors how may not um and things like that what kind of generalization do you give an investor who wants to do this how long and what kind of cost is typically involved and and does it make a difference if they're brand new or if they've been around for a while like what's uh with some advice for those groups so we uh we kind of do it a little bit different with uh crowdfunding lawyers uh you call just a regular law firm you should be expecting around 35 grand for kind of the beginning to end of the getting some a a private investment setup and that's kind of been the standard for many many years there's also websites that you can find really the the dirt cheap plug in your information and it spits out whatever your offering documents are there's not really any attorneys involved you're not getting any advice you're getting a templated form and good luck with life so we're really doing it very differently than a lot of what's in the market there uh we do we really we base our costs based on the size of the deal we know that hey there's more capital you're raising there's more work that's required there's more risk there's more consultation and follow-up so and everybody hates getting ongoing attorneys fees you know surprise i got a phone message from you that is let's just call it six minutes point one of my billable hour rate let's send it right over to you that's how most of the market works and uh not a fan of it at all so the way that we do it is we we charge just a fixed fee based on the amount of capital and it ranges from if you're only doing like a million dollar deal it starts at like 10 grand if it's a 5 million it gets up to 15 000 and then it scales all the way up to if you're doing a 100 million dollar funding projects uh generally we don't care what kind of securities exemption you're going under we want to make sure that you based on your situation your network your marketing plans your investor plans that you fit the right box and we do the right process so we don't care if it's crowdfunding any friends and family online solicitation we don't care we're there to kind of work with you through the process to just get the best deal together and available the only exception is we do represent reggae offerings and reggae is just kind of its own animal it's like a mini ipo you can raise up to 75 million dollars from any investors but there's a qualification process that actually everything gets filed with the sec there's ongoing filing requirements it takes longer a lot of back and forth with the sec and your information is out there in the public but a great way to uh really take it to that next level and you'll go on the website and you'll find something that looks like that it's a big giant chart it shows you all the different possibilities and what's what's included in those and you know what are the regulations and stuff and most of the time from my knowledge real quick thank you my uh name brother for bringing that up that chart i'm going to tell you right now it has not been updated since there were some major major securities regulation changes literally two weeks ago right the whole game kind of changed just within the past month uh so we still have to update that target but we will and now we really will in the next few days so you know from what i've been told most of the time the cost goes up or down depending on the money size but also what type of fund how many unaccredited investors do you want to get in there and how many credit investors is there any other factors that increase decrease the cost dramatically based on that one factor no not for us at least okay and how long would it take for this process from beginning to end typically take a g....